What is the minimum pension payment?

 

Your minimum pension payment, or minimum drawdown rate, is an amount set by the government that needs to be paid out of your account-based pension, or other super income streams, each financial year. The minimum pension drawdown rate is determined by your age and increases as you get older.

 

How are the minimum pension payments calculated?

 

Minimum pension payments are worked out at the start of your pension, and then again on July 1 each year based on your age and account balance. The minimum drawdown rate for each age group is shown in the table below.

Age
Standard minimum age-based percentage
Age

Under 65

 

Standard minimum age-based percentage

4%

Age

65 – 74

Standard minimum age-based percentage

5%

Age

75 – 79

Standard minimum age-based percentage

6%

Age

80 – 84

Standard minimum age-based percentage

7%

Age

85 – 89

Standard minimum age-based percentage

9%

Age

90 – 94

Standard minimum age-based percentage

11%

Age

95+

Standard minimum age-based percentage

14%

Note: The table above shows the standard minimum percentages for each financial year. Age is measured on the commencement day of the pension and every following 1 July.

 

What are my minimum pension payments in the first year?

 

Minimum pension payments in the first year of an account-based pension will depend on how much time is left in the financial year.

 

They’re calculated as the amount you started your pensions with multiplied by the age-based percentage (from the table above) multiplied by the proportion of days left in the financial year, rounded to the nearest ten dollars.

 

Example 

  • On 1 April, Grace (age 65) transfers $200,000 of her super savings to start an account-based pension. 
  • Grace’s minimum age-based percentage from the table above is 5%. 
  • There are only 91 days left in the financial year, so Grace’s minimum pension payments are reduced to reflect this. 
Grace’s minimum pension payments for the period 1 April to 30 June are $2,490.

 

Calculation: $200,000 x 5%  (age-based percentage) x 91/365 (proportion of days left in the financial year) = $2,490 (rounded to the closest ten dollars).

  • This means Grace must receive total pension payments of at least $2,490 before the end of the year.  However, Grace can choose to receive more than this if she wants.

  • If Grace had started her pension in June, she could choose to take no pension payments in that month.  

What are my minimum pension payments each full financial year?

 

Pension payments in each full financial year of an account-based pension are calculated as the 1 July account balance multiplied by the age-based percentage (from table above), rounded to the nearest ten dollars.

 

Example

  • On 1 July, John (age 75) has an account-based pension with a balance of $300,000.  

  • John’s  minimum age-based percentage from the table above is 6%. 

John’s minimum pension payments for that financial year are $18,000 

 

Calculation: $300,000 (1 July account balance) x 6%  (age-based percentage) = $18,000 

  • This means John must receive total pension payments of at least $18,000 over the financial year. However, John can choose to receive more than this if he wants. 

What are my maximum pension payments?

 

There is no maximum placed on pension payments from an account-based pension. You’re only limited by your account balance.

 

For other super-income pensions, there's a maximum pension payment limit of 10% each financial year. These are known as pre-retirement pensions, or transition to retirement (TTR) pensions.

 

However, if you're receiving a transition to retirement pension a maximum payment limit of 10% each financial year applies. This will change when you turn 65, or you have met another condition of release, like turning 60 and retiring.

 

Can I take out more than the pension minimum?

 

Yes, you can take out amounts larger than the minimum pension payment.

 

Account-based pensions give you the flexibility to decide how often you’re paid, and how much you’d like to receive (subject to receiving the minimum pension payment). You’re only limited by the total amount of super in your account.

 

In addition to your regular payments, you can take any extra amounts as a lump sum or increase your regular payment amount. 

 

Does CFS have an account-based pension product?

 

Yes, FirstChoice Wholesale Pension is designed for members who are approaching retirement and wish to convert their super benefits into a flexible and tax-effective regular income stream. 

 

What is the difference between a pension payment and a lump sum withdrawal?

 

Extra pension payments and lump sum withdrawals have different impacts on tax and social security. So, if you receive an extra payment outside of your regular payments, you’ll need to tell us if you want this treated as a pension payment or a lump sum withdrawal. 

 

There is no fixed rule on which is best. This decision should be based on your personal goals and financial situation. 

 

Here are some of the key differences:

Account-based pension payment
Lump sum withdrawal from account-based pension
Account-based pension payment

Counts toward your minimum pension payment amount 

Lump sum withdrawal from account-based pension

Does not count towards your minimum pension payment amount 

Account-based pension payment

If you are under 60, the taxable component is taxed at your marginal tax rate (less any applicable tax offsets). This may be between 0% and 47%, depending on your circumstances. 

Lump sum withdrawal from account-based pension

If you are under age 60, the taxable component may be taxed at 0% - 22%, depending on your age, and the withdrawal amount. 

Account-based pension payment

If you are 60 or over, the pension payment is tax-free.

Lump sum withdrawal from account-based pension

If you are 60 or over, the withdrawal is tax-free.

Account-based pension payment

Pension payments do not reduce your transfer balance amount. 

Lump sum withdrawal from account-based pension

Lump sum withdrawals reduce your transfer balance amount.

Account-based pension payment

Social security income test 

For account-based pensions that are grandfathered (commenced before 1 January 2015), extra pension payments will be treated as income in the financial year the payment is made. 

Lump sum withdrawal from account-based pension

Social security income test

For account-based pensions that are grandfathered (commenced before 1 January 2015), lump sum withdrawals will permanently reduce the income stream’s Centrelink deductible amount. 

 

If you’re still not sure which direction to take with your retirement wealth, or how the minimum pension payment rate might affect you, you can speak with your financial adviser or use our find an adviser service to locate one near you.

 

They’ll review your personal situation and help you find the solution which best suits your life-stage, financial goals, and risk tolerance. 

What’s next?

Account-based pensions

Account-based pensions

Learn how they work, how you can start one, and the benefits of setting one up.

 

Speak to an expert

Speak to an expert

Our dedicated team of retirement specialists can provide general advice and help with a range of topics related to your retirement. 

Check your Age Pension eligibility

Check your Age Pension eligibility

Navigate the Age Pension process with ease with Retirement Essentials’ free Age Pension Eligibility Calculator.

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Disclaimer

Avanteos Investments Limited ABN 20 096 259 979, AFSL 245531 (AIL) is the trustee of the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557 and issuer of FirstChoice range of super and pension products. Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (CFSIL) is the responsible entity and issuer of products made available under FirstChoice Investments and FirstChoice Wholesale Investments.

 

Information on this webpage is provided by AIL and CFSIL. It may include general advice but does not consider your individual objectives, financial situation, needs or tax circumstances. You can find the target market determinations (TMD) for our financial products at  https://www.cfs.com.au/tmd which include a description of who a financial product might suit. You should read the relevant Product Disclosure Statement (PDS) and Financial Services Guide (FSG) carefully, assess whether the information is appropriate for you, and consider talking to a financial adviser before making an investment decision. You can get the PDS and FSG at www.cfs.com.au or by calling us on 13 13 36.